Red Sea strikes expose threat for resurgence of inflation

Market reports
Thanim Islam
  • Markets continue to ease rate cut expectations
  • First signs of economic activity in 2024 due today
Sign up


USD marched on yesterday as US treasury yields clawed back losses from the two previous days, with 10-year yields back up to 4.15%. The USD index 2024 uptrend thus looks set to continue as price action continues to make higher highs. GBPUSD was lower as a result but remains in its month long sideways trading, and EURUSD dipped under its 200-day moving average indicating. More downside to come on the pair.

In the money markets, the amount of rate cuts expected this year continued to ease as traders take heed of warnings from central banks, as well as taking into consideration the inflationary pressures from geopolitical risks.


Market rates

* Daily move - against G10 rates at 7:30am, 24.01.24

** Indicative rates - interbank rates at 7:30am, 24.01.24

Table (55)

Data points

Table (54)


  • None today.

Our thoughts

All about PMI numbers as we look to get initial estimates of activity in the respective service and manufacturing sectors in January. Europe's activity is expected to remain in contraction territory, but both UK and US activity is expected to show expansion. This should keep GBPEUR buoyant, and we could well see a push through that December high.

Also on the agenda today is the Bank of Canada rate decision, where rates are expected to remain at 5%. The message from the Bank seems unlikely to be overtly dovish given December's inflation numbers came in higher. A similar message as the Fed seems likely, where there will be a softening of their hawkish tone and suggestions of being open to cuts this year.

Chart of the day

Our importing clients will be very aware of the implications that the attacks on civilian ships in the Red Sea have had on their business, not just the delays on supplies but also the financial cost. Freight container costs have more than tripled since the attacks, and the last time this happened and remained elevated this eventually led to a rise in inflation. We know from recent market price action that USD has been the currency most impacted from an expectation of rate cuts. So should inflation start to rise, it seems the amount of rate cuts being priced in will likely reduce, which could bode well for USD going forward.

24012024 cotd
Source: Bloomberg Finance L.P.

How we can help

Our team of currency experts are here to help you get more from your money when making international payments. We will work with you to understand your payment needs and offer specialised guidance on the best options available to you. Over the last 17 years we’ve helped over a million customers and last year alone processed over £9.1bn. We’re tried and trusted, and we’re ready to help you.

Have a great day.


Expert insights on demand

Sign up to our daily market reports to get the latest news and insights on worldwide currency movements straight to your inbox every morning.

Enter your email address below to subscribe.